**4. Biogas economics**

The economy of a biogas plant is characterised by initial high investments costs, some operation and maintenance costs, mostly free raw materials (animal dung, aquatic weeds, terrestrial plants, sewage sludge, industrial wastes, poultry litter etc.) and income from the sale of biogas or electricity and heat (Amigun and von Blottnitz, 2007). Sometimes, other values can be added, e.g. for improved value of sludge as a fertilizer. The installation cost of a typical biogas plant is site specific (it depends on the topography of the area, labour cost at the site location, community participation, learning curve, use of the biogas product). Also, the economic performance of a biogas system will be very site specific and will depend on current markets for the input and outputs, the nature of agricultural practices and the system of organisation adopted by the community involved (Taleghani and Kia, 2005).

Good understanding of the relation between capital costs and plant size can provide useful information in assessing economic viability of biogas plants, and providing means whereby decisions are taken on developmental of a new project. In a developing economy, local market opportunities frequently restrict the size of a process plants. Scale effects influence costs per unit of capacity (specific cost). The scale economies concept is therefore of key concern because it can help in determining the optimal size of a biogas digester (Amigun and von Blottnitz, 2010).

Higher capital cost is experienced in African biogas industry. This is due to the fact that the current market for biogas in Africa is slow. Contractors therefore tend to lump all of their

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costs into the unit they are constructing because they may not get another order for months (Biogas for better life, 2007). Biogas technology in Africa appears to be implemented by technologically driven oligopolies - an economic situation where there are so few suppliers of a particular product that one supplier's action can have a significant impact on price and its competitors (Butare, 2005; Cawood, 2006, Mojaki Biogas Technology, 2008). The price which the typical firm charges depends on the number of firms in the industry. The less the number of suppliers, the less the competition, and hence the higher the charge. This concept is represented in the equation 1. The higher capital cost experienced in African biogas industry is aggravated by the fact that the current market for biogas in Africa is slow. Contractors therefore tend to lump all of their costs into the unit they are constructing because they may not get another order for months (Biogas for better life, 2007).

$$Q = \left( S \not\!\!/ n + S \times b \times \overline{P} \right) - S \times b \times P \tag{1}$$

where:

54 Biogas

Kenya has population of 40.6 million people, of which 77.8% reside in the rural areas (United Nations, 2007). Kenya similarly has a programme for promoting domestic biogas development, in which the Kenya National Federation of Agricultural Producer is the implementing agency8. The programme targets to install 8000 domestic biogas plants of between 6m3 - 12 m3 capacity by 2013, and prioritizes the high agricultural potential regions.

Ethiopia has a population of 89.6 million people, of which 82.4% live in the rural areas (United Nations, 2007). Through the Ethiopia Rural Energy Development and Promotion Centre (EREDPC) the National Biogas Program (NBP) was also launched. The aim of the programme is to establish 14000 biogas plants between 2008 and 2012, in four regions of Ethiopia (EREDPC, 2008). The NBP utilises cattle manure as the feedstock for biogas production (EREDPC, 2008). In 2009, some households had already started experiencing the benefits of the project such as: use of clean cooking fuel; income savings made in terms of time and money to search for fuel and purchase other traditional fuels (wood, charcoal and kerosene) respectively; and income generation from the sale of biogas to the neighbouring

The economy of a biogas plant is characterised by initial high investments costs, some operation and maintenance costs, mostly free raw materials (animal dung, aquatic weeds, terrestrial plants, sewage sludge, industrial wastes, poultry litter etc.) and income from the sale of biogas or electricity and heat (Amigun and von Blottnitz, 2007). Sometimes, other values can be added, e.g. for improved value of sludge as a fertilizer. The installation cost of a typical biogas plant is site specific (it depends on the topography of the area, labour cost at the site location, community participation, learning curve, use of the biogas product). Also, the economic performance of a biogas system will be very site specific and will depend on current markets for the input and outputs, the nature of agricultural practices and the system of organisation adopted by the community involved (Taleghani and Kia, 2005).

Good understanding of the relation between capital costs and plant size can provide useful information in assessing economic viability of biogas plants, and providing means whereby decisions are taken on developmental of a new project. In a developing economy, local market opportunities frequently restrict the size of a process plants. Scale effects influence costs per unit of capacity (specific cost). The scale economies concept is therefore of key concern because it can help in determining the optimal size of a biogas digester (Amigun

Higher capital cost is experienced in African biogas industry. This is due to the fact that the current market for biogas in Africa is slow. Contractors therefore tend to lump all of their

8 http://www.kenfapbiogas.org/index.php?option=com\_content&

view=category&layout=blog&id=36&Itemid=57

A number of demonstration plants have currently been constructed and launched.

**3.2.6 Kenya** 

**3.2.7 Ethiopia** 

towns (Hivos, 2009b).

**4. Biogas economics** 

and von Blottnitz, 2010).

*Q =* firm sales; *S* = total sales of the industry; *n* = number of firms in the industry;

*b* = constant term representing the responsiveness of a firm's sales to its price;

*P* = price charged by the firm itself; *P* = average price charged by its competitors.

Substantial cost reduction could be obtained through design optimisations and efficiencies created through economies of scale, as well as smart implementation and planning. In planning, the concept of clustering installations, where a number of orders for digesters within a defined geographic area would accumulate until a threshold is reached could provide substantial reduction of costs.

There is evidence that higher location factors are partly due to the need of importing specialized equipment (World Bank, 2007). In heavily industrialized countries, the equipment is often fabricated in the same area where the plant is constructed; in developing countries, depending on level of technology needed, equipment is generally imported along with specialised personnel to install it, at premium prices leading to increased investment costs. The investment costs are believed to be affected by the geographical location of the country viz: coastal and landlocked locations. However, a recent report by Amigun and von Blottnitz (2010) on the influence of geographical location (coastal and landlocked biogas plants) on biogas economics revealed that the cost of biogas technology is largely independent of geographical location of the plant, which is probably explained by the use of local construction materials in most small-medium scale biogas plants in Africa. The lower the import content of the total plant costs (for example, amount of steel), the less the external diseconomies which may arise in consequence of sliding exchange rates and transportation construction of materials.
